A federal judge on Feb. 11 awarded Virginia Electric and Power d/b/a Dominion Virginia Power nearly $21 million in damages in a lawsuit the utility had filed against Bransen Energy Inc. over allegations Bransen shipped non-spec coal earlier this decade during the testing stages for the newly constructed Virginia City Hybrid Energy Center (VCHEC) power plant.
The order was handed down by Judge John A. Gibney Jr. out of the U.S. District Court for the Eastern District of Virginia. Dominion Virginia Power is a unit of Dominion Resources (NYSE: D).
The sales agreements in question required that the coal meet specific standards necessary to test and open the new power plant, which was designed to largely burn relatively low-quality waste coal from around the region. Dominion sued Bransen for two breaches of contract. In its first claim. Dominion contends that in one phase of the transaction, Bransen provided “coke breeze” instead of’ “run-of-mine” coal. The court previously granted summary judgment to Dominion on the coke breeze claim, and awarded Dominion $1,957,325 in damages. Second, Dominion says that Bransen’s remaining coal, while not coke breeze, nevertheless did not meet the contractually mandated quality standards. The parties tried the second claim before the court, and this Feb. 11 opinion contains the court’s rulings from the trial.
Before Dominion could bring the plant on line, it had to conduct tests, not only to make sure all the equipment worked, but also to satisfy various environmental permits issued by the Commonwealth of Virginia. Dominion contracted with Bransen to provide “performance” fuel—coal that met higher than normal standards for power plants. Dominion entered four contracts related to the test and start-up phase of the plant—three of the agreements were with Bransen.
At one point, Dominion agreed to purchase 450,000 tons of “run-of-mine” coal with an option to buy 150,000 more tons subject to Dominion’s specifications on the quality of the coal. Bransen delivered the product to Dominion from February through December 2011, and Dominion paid for all the product delivered during that time.
But then late that year, Dominion received a tip thai Bransen had provided coke breeze, a product which Dominion could not process at the VCHEC. After confirming that the product from Bransen contained coke breeze, Dominion retained an independent testing company to examine the coal in five ready piles. Tests occurred on two piles in January 2012 and on three piles in April 2013. Each of the piles failed to meet one or more of the contractual specifications for moisture and Btu content. In addition, the piles contained coal that violated the size specifications of the contract by being too fine. After testing the ready piles. Dominion did not request more ready piles from Bransen. The failure to meet the specifications meant that Dominion could not use the coal to test the VCHEC. Because the coal did not meet the specifications, Dominion rejected the ready piles.
“The production of non-conforming coal did not end the story,” the judge wrote. “After concluding that the Bransen coal was a lost cause. Dominion took steps to cover its losses and to make the best of a bad situation. An expert witness, Guy Davis, testified about Dominion’s costs to remedy the breach, and the Court finds his testimony credible and accurate. Dominion tried to use some of the Bransen coal. To do so, however, Dominion had to process the coal to improve its quality. To improve the coal, Dominion had to employ Harold Keene Service Co, LLC (‘Omega’) to screen the coal, Alpha Natural Resources to wash the coal, and Power Fuels, LLC (‘Power Fuels’) to process the coal; these services cost $10,681,425.
“Because Dominion found itself with thousands of tons of non-conforming coal, it had to continue to store it, and so it incurred extra costs on the lease of the storage site. Dominion spent an additional $787,000 for losses incurred due to the increased rent at the leased site and $1,107,279 for the extended time that Omega had to maintain the stockpile under the most recent lease agreement. Even with these efforts, Dominion had to buy additional coal from other mines to make up for the shortfall. Dominion’s losses from replacing unusable coal were $10,318,309. All told, Dominion’s cost in curing the Bransen default totaled $22,894,013. Since the Court already awarded Dominion the damages and costs related to the coke breeze claim, the Court finds the remaining damages amount to be $20,936,688.”
Bransen offered six arguments in attempts to “skate around the breach,” the judge wrote.
- First, it says the coal was not really wet, but that recent rains had raised the apparent moisture level. Bransen’s argument fails because the test coal came not only from the outside of the piles but also from the core—an area that the rain would not dampen, said the judge.
- Second, Bransen says that run-of-mine coal is the same thing as waste coal. Credible expert testimony refuted this claim; run-of-mine coal constitutes freshly mined coal whereas “waste coal is something that is left over after you have removed the good coal out of it.”
- Third, Bransen argues that its own internal testing of the coal found that the coal met the specifications required by Dominion. But a Services Agreement required that a third-party analyze the coal and that both parties accept the third party analysis. The third party found that every sample failed to meet the quality standards in the contract, so Bransen’s reliance on its own testing does not help it.
- Fourth, Bransen argues that Dominion did not correctly follow the termination procedure in the contracts. This court in its previous summary judgment opinion held that Dominion properly and timely rejected Bransen’s shipments after independent laboratory analysis revealed that the product contained coke breeze. Since the facts leading to the discovery of the coke breeze also led Dominion to continue its investigation and uncover the remaining non-conforming coal, the court’s prior ruling applies to the non-conforming coal claim as well.
- Fifth, Bransen says that Dominion’s continued utilization of the product shows that it never rejected it. After rejecting the coal, Dominion did continue to use the coal as part of a mitigation plan to reduce its damages. Mitigation of damages does not equal acceptance of the product, the judge ruled.
- Sixth, Bransen argues that Dominion waived all warranties related to the quality of the coal except those specifically expressed in the contracts, so the coal it shipped did not breach the contract. The contracts expressly impose the requirements that Bransen failed to meet, said the judge.
The judge concluded: “In sum, Bransen’s ready pile of excuses does not change the fact that Bransen breached the contract.”